. (Measuring Unemployment) Determine the impact on each of the following if 2 million formerly unemployed workers decide to return to school full time and stop looking for work:

a. The labor force participation rate
b. The size of the labor force
c. The unemployment rate

2. (Measuring Unemployment) Suppose that the U.S. noninstitutional adult population is 230 million and the labor force participation rate is 67 percent.
a. What would be the size of the U.S. labor force?
b. If 8.5 million adults are not working, what is the unemployment rate?

3. (Types of Unemployment) Determine whether each of the following would be considered frictional, structural, seasonal, or cyclical unemployment:
a. A UPS employee who was hired for the Christmas season is laid off after Christmas.
b. A worker who is laid off due to reduced aggregate demand in the economy.
c. A worker in a DVD rental store becomes unemployed as video-on-demand cable service becomes more popular.
d. A new college graduate is looking for employment.

4. (Inflation) Here are some recent data on the U.S. consumer price index:
Year CPI
1999 166.6
2000 172.2
2001 177.1
2002 179.9

Compute the inflation rate for each year 1999-2002 and determine which years were years of inflation. In which years did deflation occur? In which years did disinflation occur? Was there hyperinflation in any year?

5. (Sources of Inflation) Using the concepts of aggregate supply and aggregate demand, explain why inflation usually accelerates during wartime.

6. In recent years, how has the U.S. inflation rate compared with rates in other industrial economies? Why should we be careful in comparing inflation rates across countries? The Federal Reserve Bank of St. Louis maintains a Web page devoted to international economic trends. Please go to (Links to an external site.)Links to an external site. choose two countries and compare the countries’ recent inflation experiences.

7. (Unemployment in Various Groups) Does the overall unemployment rate provide an accurate picture of the impact of unemployment on all U.S. population groups?

8. Suppose you live in a country where the rate of inflation is very high. What can you do to protect your wealth against inflation? Briefly discuss.

Chapter 8 questions:

9. (Shifts in the PPF) Do you think the September 11, 2001 attacks on the World Trade Center and the Pentagon affected short and/or long-term productivity in the United States? (Answers may vary)

10. (Technological Change and Unemployment) What are some examples, other than those given in the chapter, of technological change that has caused unemployment? And what are some examples of new technologies that have created jobs? How do you think you might measure the net impact of technological change on overall employment and GDP in the United States?

11. (Productivity) As discussed in the text, per capita GDP in many developing countries depends on the fertility of land there. However, many richer economies have little land or land of poor quality. How can a country with little land, or unproductive land, become rich?

12. (Labor Productivity) What two kinds of changes in the capital stock can improve labor productivity? How can each type be illustrated with a per-worker production function? What determines the slope of the per-worker production function?

13. (Output per Capita) Explain how output per capita can grow faster than labor productivity. Is it possible for labor productivity to grow faster than output per capita?

14. (Rules of the Game) How do “rules of the game” affect productivity and growth? What types of “rules” should a government set to encourage growth?

15. Please go to the Bureau of Labor Statistics (BLS) page on Quarterly Labor Productivity at (Links to an external site.)Links to an external site. to get the latest news release on productivity and costs. Rank the various sectors of the U.S. economy from highest to lowest according to their most recent productivity growth rates. Briefly comment on what you found.

16. The BLS compiles international data on manufacturing productivity at (Links to an external site.)Links to an external site. Please find which nations have enjoyed the mostrapid growth in manufacturing productivity, for the most recent period. Which nations have experienced the slowest growth? Has productivity actually declined anywhere? (Answers may vary)

17. Why do economists care about the long term trend or growth in the economy? Why is growth important? Briefly discuss.

18. What is the link between better education and a strong economic growth? Briefly discuss.

19. (MPC and MPS) If consumption increases by $12 billion when real disposable income increases by $15 billion, what is the value of the MPC? What is the relationship between the MPC and the MPS? If the MPC increases, what must happen to the MPS? How is the MPC related to the consumption function? How is the MPS related to the saving function?

20. (Government Spending) How do changes in disposable income affect government purchases and the government purchase function? How do changes in net taxes affect the consumption function?

21. (Net Exports) What factors are assumed constant along the net export function? What would be the impact on net exports of a change in real disposable income?

22. Expectations and consumer confidence are important in determining fluctuations in aggregate spending. In your opinion, what is the present status of consumer confidence? Do you think consumers are pessimistic or optimistic? Briefly discuss.

23. (Consumption Function) How would an increase in each of the following affect the consumption function? How would it affect the saving function?
a. Autonomous net taxes
b. The interest rate
c. Consumer optimism or confidence
d. The price level

24. According to the life-cycle hypothesis, what is the typical pattern of saving for an individual over his or her lifetime? What impact does this behavior have on an individual’s lifetime consumption pattern? What impact does the behavior have on the saving rate in the overall economy?

25. (Non-income Determinants of Investment) What are some factors assumed to be constant along the autonomous investment function? What kinds of changes in each factor could cause investment spending to increase at each level of real disposable income?

26. What factors affect export and import? Briefly discuss.

27. Why would the following investment expenditures increase as the interest rate declines?
a. Purchases of a new plant and equipment
b. Construction of new housing

28. (Aggregate Expenditure) What are the components of aggregate expenditure? In the model developed in this chapter, which components vary with changes in the level of real GDP? What determines the slope of the aggregate expenditure line?

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